We try to figure out the common financial dilemmas that you will face during different stages of life and tell you how to make efficient choices.

We try to figure out the common financial dilemmas that you will face during different stages of life and tell you how to make efficient choices.

Limited savings, but numerous responsibilities. That’s life for you. And some of these goals or responsibilities will run parallel to each other. For one, while you can’t delay saving for your retirement, you can’t afford to ignore your child’s future either.

Since increasing your pay or reducing expenses beyond a limit can’t always be an option, we often struggle with financial choices. We try to figure out the common financial dilemmas that you will face during different stages of life and tell you how to make efficient choices and optimise your allocation.

20s: Balancing debt against college choice You are probably eyeing a course to help you up the corporate ladder. But if you do not have scholarship and your parents have not saved enough, is it worth taking a big loan? “Don’t start your working life with a massive debt. Defaults could ruin your chances of borrowing later,” says Anil Rego, CEO, Right Horizons, an investment advisory company.

Be conservative when analysing your employment potential. “Take a base case scenario for salary packages that you can land after the degree. The EMI for the loan should be 50% or lower than the net monthly pay,” says Arvind A. Rao, Founder, Arvind Rao & Associates.

As this is a long-term loan, even a percentage difference in interest rates can save you a lot of money. Rather than going for an unsecured education loan where you pay a higher rate of interest, see if your parents can get you a secured loan and keep an asset as a collateral. It might make sense to work for a few years, save some money and then apply for a course.

Tip: Be conservative, The EMI for the loan should not be more than 50% of the potential monthly salary that can be landed after the degree.

30s: MAnaging home loan emi or investing in equity for child You would choose your child’s future any day over your dream house. It even makes financial sense to delay buying a property. However, advisers warn against delaying the purchase so much that your debt continues into your retirement. “After retirement, living in a rented accommodation can be stressful. Also, it is not a good idea to retire with debt,” says Priya Sunder, Director, PeakAlpha Investment, an investment advisory firm. Besides, the house can be a collateral to help you borrow in case the education savings fall short.

You could consider a smaller apartment that costs less. “If the education costs are expected to be high, keep down the cost of the property and reduce EMI,” says Sunder. Or, you can opt for SIPs over EMIs. For instance, you take a home loan for Rs 1 crore for the next 20 years at 10% interest. You would pay about Rs 1 lakh in EMI each month. Over 20 years, the interest cost would be over Rs 69 lakh. Instead, if you rent a house for Rs 30,000 and invest Rs 70,000 via an SIP each month, growing at 15% over the next 20 years, the corpus would be close to Rs 10.5 crore, and tax-free, if invested in an equity fund. This money could fund both goals.

Tips: Buy a smaller house, which can also be a collateral for a cheaper education loan. Or rather than taking a huge loan, live on rent and use SIPs to build a corpus for both goals.

40s: Continuing with job or turning entrepreneur It’s best to take the plunge when you have no baggage. However, at 40, you probably would have a dependent family and not be finished saving for all your goals. You might also have liabilities like home and car loans. Turning entrepreneur would mean putting everything on the backburner till the new business is stable. A comeback may also not be easy if you fail. Plus, you will be closer to retirement. “If the entrepreneur utilises all savings, in the event of loss, she would have to start all over again with less time on her side,” says Srikanth Bhagwat, Principal Advisor, Hexagon Wealth Advisors.

Even if you turn an entrepreneur, you can’t ignore financial shields such as term and health insurance for all dependents, be debt-free and have savings of at least 12 to 24 months to cover living expenses. Also, it is a bad idea to dilute your investments or assets that you may have earmarked for other goals (say retirement) for initial funding.

Tip: It is a bad idea to dilute your investments or assets that you may have earmarked for other goals for initial funding.

50s: Choosing between child’s higher education and retirement The deadlines of these two big goals may collide. While neither can be ignored, financial planners say your retirement corpus is the priority. Your child can get a scholarship or take a loan. However, the bank won’t extend you a credit because you do not have sufficient savings post-retirement. Even if they do, a personal loan will always be costlier than an education loan.

“An education loan creates a sense of financial responsibility in the child, allows you to keep your assets and gives you additional tax benefits,” says Bhuvana Shreeram, Certified Financial Planner. Some may argue it is better to work longer and save more than depend on an educational loan. “It is not difficult to find a job post-60 these days. Plus, being a guarantor to a big loan when you do not have an income may not be a good idea,” says Vivek Rege, Founder and CEO, VR Wealth Advisors.

However, there is no guarantee that you will find employment post retirement. On the other hand, even if your child chooses an unconventional course where it is difficult to get a loan, if you have built enough assets that can stand as collateral, the lender will sanction the funds, that too at a more competitive rate.

Tip: If you have built enough assets, your child can always take a education loan, where the asset can stand as collateral.

60s: Investing in equity or in debt options Keep moving your investments earmarked for retirement towards debt as you near 60. However, that should not stop you from reinvesting your kitty in equity options. Considering they are your best chances to beat inflation, most advisers recommend keeping a portion of the nest egg in equities.

Although, the case for equities becomes stronger if you are still earning after 60. “Depending on your risk-taking capacity and availability of funds, you can invest 15-25% in equities via SIPs or in hybrid funds to beat inflation. However, you should have an investment horizon of at least five years,” says Pankaaj Maalde, Certified Financial Planner. Adding the growth-oriented component will entail sacrificing immediate consumption of that part of the corpus. Also, you cannot depend on your equity investments for your monthly income needs.

Tip: You may continue your monthly SIPs post-retirement, provided you do not depend on such investments for your annuity income and have an emergency fund in place.